Robert G. Ethier Market Monitoring March 18, 2005 A Review of the Monitoring of Market Power: Discussion

2 Some Observations on the Survey of Metrics/Tools Many are remarkably simple Idiosyncratic markets may have unique tools Is there a greater role for more sophisticated analysis and modeling? –Need to figure out how to involve more academics; data access an issue Metrics must be used with care with policymakers –HHI’s are popular, but of limited usefulness –Benchmark models are easy to understand and seem to answer the right question, but have unknown error bands and widely varying methodologies Mitigation can be remarkably infrequent even in load pockets, with the right rules –What is the “right” allowable mark-up?

3 What Does (and Should) an RTO Market Monitor Do? Mitigation / Enforcement Analysis Market Design Information provision and explanation Detailed market and system operations evaluation Oversight of transmission operations and investment?

4 The Market Monitor as Cop Market Power Mitigation gets all the attention –Generators see as cause of bankruptcies –New England experience suggests mitigation is not the cause, incomplete market design is FERC concerned about delegation of authority and exercise of discretion by Market Monitors –Market Monitoring NOPR forthcoming? –However, Review abstract states, “ The discretion required for effective Market Monitoring is facilitated by institutional independence.” –FERC likely to claim a larger role here

5 If Not a Cop, then an Analyst? Effort required to execute market power mitigation has decreased over time –Rules have stabilized, systems improved Analysis, design, and information demands have increased Data access and resource availability make Market Monitors well suited to these roles –Essential for complicated marketplace. –Resource constraints and distance from data and operations make regulators less suited for this role